KeNo's Housing and Economic Portal: Sunday April 25 Housing and Economic stories

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L.A. to Run Out of Cash in a Month - (www.bloomberg.com) Los Angeles will run out of cash on May 5, city Controller Wendy Greuel said today in a release in which she requested a $90 million transfer of reserve funds to pay bills. The controller said she received a letter from the Los Angeles Department of Water and Power today indicating the utility wouldn’t send an anticipated $73 million payment to the city’s general fund. That money is part of an annual contribution of 8 percent of power revenue that the utility makes in lieu of paying taxes to the city, according to Ben Golombek, a spokesman for the controller. “The question I have been asked most often during the budget crisis is, ‘When will the city run out of money?” Greuel said in the e-mailed release. “Unfortunately, we finally have the answer.” Greuel, 48, said in the release that the city might not be able to make payroll. She asked Mayor Antonio Villaraigosa and the City Council to release $90 million from reserve funds to meet what she described as “an urgent cash need.” The controller’s financial reporting division estimated that the city would need $90 million to ensure solvency through the fiscal year that ends June 30, according to Golombek. The mayor supports the controller’s request for $90 million from the reserve fund, said his spokeswoman, Sarah Hamilton, in an e-mailed comment. He also called on city managers to adhere to spending controls he asked for in March, according to Hamilton.

N.Y. Budget ‘Shell Game’ Hides Deficits, Report Finds - (www.bloomberg.com) The state of New York’s history of budget manipulation is contributing to its chronic deficits and cash squeeze, Comptroller Thomas DiNapoli said. “New York needs to stop playing games with the deficit,” DiNapoli said in astatement. By shifting money between accounts in a “fiscal shell game,” state officials and lawmakers “cover cash shortfalls and avoid making the difficult decisions needed to align spending with revenues,” DiNapoli said. In the year ended March 31, the state used $6.4 billion of funds shifted and borrowed between accounts, and rolled $3 billion of payments into the current year, which began April 1, the report said. Lawmakers haven’t agreed on a plan to close a deficit of more than $9 billion this year in a $135.2 billion budget proposed by Governor David Paterson. “We agree with much of the Comptroller’s report,” said Matt Anderson, a spokesman for the Division of Budget. “That’s why we are focused on recurring spending cuts to close deficits instead of one-time transfers,” he said. Paterson has said he wants 75 percent of the budget gap closed by reoccurring cuts that would also shrink future deficits.

Fannie, Freddie Touch Off Swaps Scrap - (online.wsj.com) The regulator of Fannie Mae and Freddie Mac is on the cusp of making big changes to the market for interest-rate swaps, in a move that could potentially cut into Wall Street firms' revenues and generate new business for some firms that run exchanges. The Federal Housing Finance Agency, which oversees the government-owned mortgage giants, expects them to start using a clearinghouse to trade the swaps by year's end, according to people familiar with the matter. The impending change away from private "over-the-counter" contracts has generated behind-the-scenes meetings among officials at Fannie and Freddie, the banks that now command their business and the exchanges that want it, according to the people. Each camp is posturing to protect its interests amid the shift. Fannie and Freddie are among the biggest buyers of interest-rate swaps. The swaps are two-way derivative contracts in which one party pays a fixed rate in exchange for a rate that floats along with the market.

Greek Bonds Slide on Speculation EU-IMF Aid Plan May Falter - (www.bloomberg.com) Greek government bonds fell amid speculation that a plan for European Union and International Monetary Fund assistance in reducing the nation’s budget deficit may falter. The drop pushed the yield on the 10-year Greek bond higher as Market News International said Greece wants to bypass IMF involvement should it require assistance, because the conditions would be too stringent. An IMF delegation will arrive in Athens tomorrow to provide technical assistance and review the nation’s finances, Ta Nea newspaper said, without citing anyone. The cost to insure Greek debt using credit-default swaps rose. “Greece’s bonds are underperforming on concerns over the aid package,” said Sean Maloney, a fixed-income strategist at Nomura International Plc in London. “The talk about Greece reminds us that the path ahead is not necessarily all rosy.” Greece has been receiving information from the IMF about the conditions it would impose in return for aid, Market News said. Government officials found them to be “tough,” and are concerned that they could result in civil unrest, Market News said, citing officials it didn’t identify.

Greece Wants to Amend EU Aid Pact, Bypass IMF, Market News Says - (www.bloomberg.com) Sorry Greece, time to suck it up and fix your problems, not kick them down the road again. Greece’s government wants to amend the accord for financial aid for the country reached at the European Union summit last month to bypass an International Monetary Fund contribution, Market News International reported, citing senior government people in Athens it didn’t identify. Greek Prime Minister George Papandreou has received information from the IMF about possible measures and reforms it would ask for in exchange for financial support, Market News reported. The measures are tough and might cause political and social unrest, it said, citing the unnamed officials.

LBO Capital Raising Plummets 81% From ’08 Peak as Returns Slump - (www.bloomberg.com) Carlyle Group, the world’s second- largest buyout firm, needs more time to raise $3 billion. So does Chicago-based Madison Dearborn Partners LLC, even after cutting its target by 25 percent to $7.5 billion. Private-equity firms, more reliant than in the past on management fees to offset lower profits from selling or taking companies public, saw quarterly fundraising decline 81 percent from the peak in 2008, according to London-based research firm Preqin Ltd., forcing them to extend deadlines and scale back the amounts they seek from investors. It’s taking almost four times longer to cement commitments for funds of more than $1 billion than it did in 2004, Preqin data show. At the same time, investors are getting stingier and more discriminating. Buyout funds of all sizes raised $13 billion in the first quarter, the least since the fourth quarter of 2004, the firm said. At the peak of fundraising in the first quarter of 2008, they took in $68 billion. “The prerequisite today for raising capital has gotten harder than at any time over the last 20 years that we’ve been involved in the business,” said Michael Hoffmann, the San Francisco-based president of Probitas Partners LP, a company that helps private-equity firms find investors.

Oops, Jobs Didn't Grow Enough - (www.businessinsider.com) So 162,000 jobs were created in March, but unemployment didn't budge, holding at 9.7%. Here's why. As visualized by Econompic below, while the economy added 162,000 jobs, the average monthly U.S. population growth over the last ten years has been 211,000. Thus the U.S. economy has to create jobs at a higher rate than its population growth, or more precisely its workforce growth, in order to see an improvement in the unemployment rate. Just don't think that a growing population is a bad thing the U.S. should be happy it's not Japan for example. There's always enough problems to be met in an economy (ie. 'jobs'), it's just a matter of connecting the jobless with problems they can solve.

Berlin wants 6.5% on Greek bailout loans - (www.dailymail.co.uk) Hopes of a swift resolution to the Greek debt crisis have taken a blow, after Germany demanded that the country should be charged a penal rate on any emergency bailout loans. In an escalation of tensions between the two countries, Greece's Deputy Prime Minister Theodoros Pangalos told a Portuguese newspaper that Germany's hard line on aid has been based on a 'moral, racial approach' and the prejudice that the Greeks don't work hard enough. European Union countries thrashed out a vague agreement at the end of last month to provide a bailout to Greece funded by a combination of eurozone economies and the International Monetary Fund. But Germany has dented chances of the final deal being firmed up swiftly, by demanding that Greece pay up to 6.5pc in annual interest on any loans it is offered. The rate being asked for by Berlin is far higher than that offered by other potential creditor countries, who are charging up to 4.5pc on loans to Greece's fellow strugglers Portugal and Ireland.